The Seven-Figure Financial Portfolio Fee

FOR 40 YEARS, Pat Rogers has generally followed—and been happy with—the progress made by the variety of brokers and wealth advisers who have managed her six-figure portfolio. But try asking her what she's paid for all that help and the retired pharmaceutical marketing executive from Riverside, Conn., will confess: "I have no idea." Indeed, the 72-year-old says she can't bring herself to tally up what's likely a grimace-worthy grand total. "I don't know if I'd dare," says Rogers. "It would probably horrify me."

Graphics: Fee Buildup

Adviser fees charged, in five-year increments, for $5 million to $100 million portfolios.

For the average American, fees that advisers and brokers charge have largely come down over the years, and disclosures about them have improved. But in the land of the rich, experts say, most clients are still only vaguely aware of what they're really being charged for returns that have been gradually shrinking since the heyday of the stock market. And while some family offices and wealth managers are making noise about discounting, most say their work demands the higher price tag. "The majority of people—even wealth-owning families—don't understand the total cost of managing their wealth," says
Sara Hamilton,
the founder and CEO of Family Office Exchange, a global network for affluent families and their advisers.

These days, the typical American household is being charged 1 to 2 percent of its portfolio, while higher-end folks are paying closer to 1 percent or less. But some critics say that percentage should be far lower, given how much—and how quickly—costs can add up in a big portfolio. And some argue that more firms should cap their fees when they are starting in the multimillion-dollar range. According to one study by Demos, a New York-based public-policy organization, couples from a median-income home in the U.S. spend close to $155,000 during their lifetime on 401(k) fees. But clients at family offices and other firms handling $25 million to $100 million may dole out up to $10 million, or more, in fees over a few decades.

Wealth managers say the workload justifies the total, since they are not only making investment moves but helping oversee trusts, real-estate transactions, taxes and myriad legal issues. While some firms argue that wealthier investors are more interested in finding trustworthy, accessible advisers, they do acknowledge that some investors say it's unfair that they have to pay a premium just because they have a lot of zeros in their portfolios. "Sometimes a lot more zeros means there's a lot more to account for, and it gets complex," says Kemp Stickney, the chief fiduciary officer at Wilmington Trust, a financial firm that oversees $79 billion in assets and offers a suite of family-office services.

But the rich are not entirely happy; nearly half of those over the age of 65—and 61 percent of those between the ages of 48 and 54—who hold at least $5 million in assets said financial services from their adviser were "very expensive" in 2013, according to a study conducted by research firm Spectrem Group. Last year, of course, most portfolios did well, with the market booming. But only about one-third of affluent investors said they were satisfied with their fees, even if their assets grew, the study from Spectrem Group found.

Ultimately, experts say, competition may change the way fees are structured. More than 199,000 individuals world-wide are now worth at least $30 million, according to Wealth-X, a consultancy. Those kinds of numbers are leading more financial advisers to seek an edge among the ultrarich, which sometimes includes offering them a discount.

At Palisades Hudson Financial Group, which manages $1.3 billion in assets, largely for business owners and senior executives along with their family members,
Larry Elkin,
the president, says actively managed account fees start at 0.95 percent for clients with at least $2 million, then drop on a sliding scale. He also offers some clients a "flat rate, all you can eat" agreement for certain non-investment management services. For its part, Wilmington Trust says it also is agreeing to let more of its larger, wealthier families pay a flat fee for some services. "When you get into significant assets, people sharpen their pencils and try to make sure they're offering a competitive fee," says Stickney.

Corrections & Amplifications: A previous version of this article incorrectly stated that Palisades Hudson Financial manages $1.5 billion, implied that it negotiates discounts and said it recently applied flat-rate arrangements to financial services.

Before I felt comfortable managing my own money, I hired several very reputable firms. My general thought is that fees are generally way overprice for the services provided. On that note, a relatively high fee for good legal/financial management is much better than a much lower fee for mediocre or poor guidance.

I have spoken by phone to Mr. Palmar and he explained to me that because of space restraints, some of my remarks to him had to be condensed. This might have led to the wrong impression that I had 40 years of experience with a variety of wealth advisors and brokers. The main message remains the same however: investors don't always know the fees that are being charged by brokers and those fees are often high. I would add that this is only true of brokers who are held to a lower standard of "suitability" when selling products to clients. This should be compared to most independent financial advisors who are held to the much higher (and legal) standard of "fiduciary." This is true of Palisades Hudson and why I chose them to manage my portfolio after years of being with one of the big brokerage houses. As a result, my investments are doing much better and I am fully aware of what I am being charged. Pat Rogers Riverside CT

In reference to past investment fees, I am "quoted" as saying "It would probably horrify me". In fact, this was a complete fabrication by the writer. I did not say that or anything like it. In addition, the writer was incorrect in the size of my portfolio, I have not had "a variety of brokers and wealth advisors" or an investment portfolio for 40 years as he claims. In fact, I didn't even live in the USA 40 years ago and at that time had never even heard of investment portfolios and brokerage houses and certainly had no money to invest. This was another example of the wild imagination displayed by the writer. I was interviewed for this article under the impression that its main thrust was to be how and why private investors select their investment advisors. The questions I was asked were about that issue. I gave the writer a brief overview of my investment history and what lead me to choose Palisades Hudson to manage my investments. The main reason for my choice was that Palisades Hudson would act in a fiduciary capacity as opposed to a brokerage house who would not. This is an extremely important distinction. The writer chose to ignore this point entirely, apparently to support the very biased position he took in the article. I am disturbed that the Wall Street Journal would allow such an article to appear. Pat Rogers

I am just a simple boy from Flint Michigan, and not the sharpest tool in the shed, but I don't understand how paying a 1.00% annual fee for 25 years on a $5M portfolio can result in advisor fees of $1,643,300.

You would think that an advisor who charges you 1% per year for 25 years would have 25% of your money, not 32.9%.

And I don't understand why everyone with money doesn't just buy U.S. Treasuries at TreasuryDirect.gov and put all the financial advisors out of business.

But I do suspect that Pat Rogers, age 72, who has paid wealth advisors for the past 40 years to manage her six-figure portfolio, would have a seven-figure portfolio today if she had just bought Treasury bonds directly from the Treasury or savings bonds directly from her local bank.

Unique advisors can add exceptional value to the clients they serve? For example, for “Equity” portfolios, here are some of the questions to ask and get answered:

1. Are you better off with just large cap stocks or large and small stocks?2. Are you better off with core or growth and or value stocks?3. Should you have mid cap stocks ?4. Should you have micro-cap stocks?5. Should you have DFA funds or traditional index funds?6. Should you have exposure to international stocks?7. Should you have exposure to emerging stocks?

8. Should you have exposure to spin-off stocks?9. Should you have exposure to IPO’s?10. Should you have exposure to MLP’s? 11. What is the optimal mix for each of these asset classes?12. Does optimal asset location matter?13. Does tax efficiency matter?14. Does tax loss harvesting matter?15. Does portfolio volatility impact your ability to compound your capital? If so, how?16. Are there estate planning strategies that allow you to maximize your after-tax returns?

For “Balanced” and “ Income” oriented portfolios, there are also exceptional questions to ask and answer.

For investors with $10MM or more to invest, we charge 43 basis points. By answering the important questions above and more, we believe we add significantly more than 43 basis points to the clients we serve. If you fit that profile, please feel free to contact Jim Hagedorn, CFA at 312 284 6363 for more information.

The wealthy would be wise to pay attention to this article. But they won't, because a shocking majority of them would rather have someone else lose their money for them than to risk doing so themselves. I have seen time and time again where very wealthy friends have put themselves at the mercy of advisors, only later to grow frustrated and transfer the wealth (after painful exit fees) to the next advisor. Each time they make a leap of faith, sometimes doing some form of due diligence yet other times just taking the advice of friends. They worry constantly about their advisors. Why not just buy a basket of stocks, or a couple of low cost indexes, and stop worrying. It works for me and for a very long time now!

Have you read WB's comment concerning the "Gotrocks"How about JB's note about the Retail Investor providing 100% of the Capital @ 100% of Risk to derive only 30% of the Markets' Gains.Anyone willing to spend the time will be smart enough to avoid such fees &c.

The author used a one-word quote from me in an inaccurate context, in a way that will probably mislead readers.He never asked me the questions that formed the thrust of his article. (If he had, I would have mentioned that our monthly statements clearly show the fees our clients pay us, both for that month and cumulatively).Apart from a brief heading, my note to the author is below.

I have never said that our investment management fee schedule is "flexible" because that is not the case, nor has it ever been.

I am sure that if you consult your notes of our conversation some months ago, you will find that any "flexible" arrangements I described was about our ways of working with clients. Most pay us flat fees for services that do not involve managing investments, such as estate or general financial planning, and tax advice and preparation. Our clients can hire us for whatever combination of services suits them.

When we manage investments for clients, we do so based on a fixed schedule of assets under management. There are different schedules according to whether we merely track and execute investment transactions that are dictated by the client, or whether we actively manage the portfolio. The fees are 0.95 percent on the first $2 million for active management and are at lower rates above that. Those fees are publicly disclosed in our Form ADV and, of course, provided to all our clients. You gave the impression that we negotiate discounts from that fee schedule. As a matter of fairness to all our clients, we do not. (We do reserve discretion to waive minimum fees on certain very small accounts.)

It is also not the case that we have "recently" offered flat-rate, all-you-can-eat services. We have offered those arrangements for NON-INVESTMENT-MANAGEMENT services for 20 years (we have been in business for 21). Those arrangements do not apply to asset management services, which are performed by our RIA affiliate.

And just for the record, I am reproducing below the query you submitted to my colleague Shomari Hearn for the article in question. You indicated that you wanted to look at the range of fees for the variety of services offered to customers in this market. That's what we discussed. The article you wrote had a very different focus, which is your prerogative as the author -- but if you had wanted me to comment on the appropriateness of percentage-based fee scales for asset management, either in the abstract or as applied at my firm, you should have asked me to do so. I don't believe you did. You just misapplied a response I made to a different question, with predictably inaccurate results.

Larry Elkin

Your query:Hello Shomari,

I hope you're both well. I'm working on our next issue of WSJ.Money magazine, and I was hoping I could speak to you or someone else at Palisades regarding how the financial services industry generally tends to charge affluent clients for the various services it provides, as well as how your firm tends to approach this.-Some say affluent individuals may sometimes get a discount (or certain free services) depending on their relationship and history with a firm, among other factors, though I imagine there are a lot of variables for a firm to consider.-There may also have been changes over time both across the industry and perhaps at your firm as well in terms of the kinds of services provided, and the associated fees. It would be interesting to see how this has evolved over the years given that the number of wealthy individuals/families is growing--along with, I presume, competition from other firms in the industry.

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